The Importance of Ultra-Affordable Solar Home Systems

Sep 8, 2017

Blog

Across the energy access sector, there has been a shift toward larger power systems and more power-hungry appliances. Higher-capacity systems can run desirable TVs or fridges, raising productivity and utility for families or small businesses, and one day grid-compatible systems will be even more ubiquitous. Larger solar home systems have higher profit margins and generate more revenue, so this trend is beneficial for companies as well.

But of the over 600 million people across sub-Saharan Africa who lack access to the electrical grid, only 600,000 households – less than 1% – have gained energy access from distributed renewables systems. There is still an incredible need for ultra-affordable solar home systems in remote, off-grid communities to reach the remaining 590M+ off-grid residents. At Fenix, our mission is to provide clean energy and financial services to the most underserved customers, which includes providing ultra-affordable products to rural, very low-income households.

To address the ultra-affordable market, we launched our Home Eco kit, an entry-level solar home system capable of powering two lights and charging one phone per day. After careful research on household spending on energy, we priced the Home Eco for radical affordability to match the average household’s existing daily energy spend, at $0.20 per day or $6 per month. We extended our financing plan to 30 months, allowing us to maintain this low daily rate so that even the poorest households could access clean, renewable energy without having to spend more than they would otherwise on kerosene, candles, and phone charging. Our flexible payment plan means that customers can pay in larger tranches when they have more income, tiding them over when income drops or when they experience spending shocks common to poor families.

Reaching rural, off-grid customers has required Fenix to develop an intensive last-mile strategy. The two most important factors that propel families to purchase a solar product are direct marketing, affecting 60% of customers, and seeing a product in action, affecting 15% of customers, according to a soon-to-be-published study by Arne Jacobson and Richa Goyal of solar customers in Uganda. Our sales approach takes advantage of these key decision-making points. Our commissioned sales representatives spend significant time educating potential customers in rural villages, while our innovative referral program incentivizes existing customers to educate their neighbors, thus activating network effects and dramatically lowering our cost of sale in rural areas, which further enables Fenix to keep its prices low. We also invest in a toll-free call center where customers can access care in their own language most hours of the day, as well as a vast network of service centers around the country in case in-person support is needed. The affordability and reliability of our products, quality of our warranty, and accessibility of our customer service support gives customers confidence in recommending our product to their neighbors, and word-of-mouth is our best channel for direct marketing as a result. These focused strategies work: the same study showed that less than 5% of our customers had bought solar previously, a significantly lower percentage than customers of other suppliers examined, showing Fenix’s skill in reaching deep into communities across Uganda to find and acquire those customers that have a real need and demand for solar products, but not access.

There is a widely-held view that ultra-affordable systems are unnecessary, as the lowest income customers are more likely to begin their clean energy journey with the purchase of a less expensive solar lantern. But the Jacobsen and Goyal study showed that customers who have purchased only a solar lantern in Uganda have a reported median annual income nearly identical to Fenix’s solar home system customers. Likewise, Hystra’s recent energy access report noted that the annualized cost of solar lanterns is $35 per year, versus $37 for a solar home system sold for cash and $49 for a system sold on a pay-as-you-go basis. While this difference is significant for poor households, bringing solar home system costs down to approximate the affordability of solar lanterns is an achievable, worthwhile goal in our product roadmap, and ultimately provides better value for the customer. This is because Fenix’s smallest solar home system is compatible with the full range of larger systems. Even the smallest unit contains the same high-capacity battery as our mid-range units, so a customer starting small can upgrade their systems by adding accessories like lights and radios, and unlocking greater battery output, as their energy needs and budgets grow over time. Rather than throwing away money on a limited-use lantern that cannot be expanded or modified, our lowest-income customers can get on the energy ladder at the same low cost, and build a more powerful household energy system over time through seamless appliance integration. What’s more, as customers make these payments on what is often their first formal loan, they generate a unique credit score that allows Fenix to offer them other life-changing products and services on credit.

Reaching and servicing rural, low-income customers with distributed energy products on a pay-as-you-go basis is a challenge. It’s less profitable upfront than selling larger systems, or selling systems for cash. It requires a strong ground game to reach remote communities, and pricing, product, sales, and service model decisions need to be made with the base of the pyramid in mind, not focused on earning the fastest dollar. But we believe the effort is worth it: Hystra’s report sized the market for ultra-affordable energy at 130-150 million households worldwide, a market that other suppliers are leaving behind. Fenix intends to bring these households onto the energy ladder through life-changing product development and inclusive financing, and to retain and grow its relationship with these households, as affordable energy access generates important savings and income-earning opportunities that create important follow-on effects in these rural economies.